TRUE Utility Costs (Plano, McKinney: rental, house, electric bill)

[AndyRoddy]

Originally Posted by TX75007

We rent an early 80s home with 3000 SF. I also own two other homes built in the 70s that are 3000SF and rent those out.

Using the current home we rent:

heating (oil) + cooling - 0$ / yr (Mostly electric - see below)
water - $700/yr
gas - $400/yr
electric - $2,400 / yr
rent - $18,000 / yr
insurance - $100/yr
RE tax + HOA - $0/ yr

total: $21,700 / yr

The newest homes will have about half the utility costs listed above. They are VERY efficient.

We get a deal on our rent because the owner and realtor (property manager) like us a lot. You might have to pay $1800 a mo for a comparable place.

TX75007, is it reasonable to expect a decent return on rental real estate in this area? A realtor told me the market value for an 8-yr old 4,500 SF home is around $3,000-$3,500 per month. It would be great to have a second home for investment purposes if those numbers are true, but it seems hard to believe.

[AndyRoddy]

Originally Posted by sossie

Central air 3 units -high seer numbers-electricity

We haven't had a summer in this house-but I dont expect it to be any worse than our old house in MA-we had 3500 sft house up there and it ranged from $350-$450 PM in the summer-but our new house is much more energy efficient -I suspect it will be around $350 pm

also HOA's vary alot-ours is $50 pm but one other house we really liked was $250 pm-I guess once you know what area you want then you can really narrow down the taxes/hoa/mort part.

Thanks again Sossie. Most of the areas we are looking at have HOA in the $50-75/mo range. I would probably rule out any neighborhood that has HOA of $250/month. But those higher HOA fees are the norm, unfortunately, in the suburbs of NJ.

[AndyRoddy]

Another question for the DFWers:

If you have a pool, how much should you budget to maintain it?
Again, I've heard anything from $1,000 per year to $300 per month.

Thanks!

[stephwin]

We don't have a pool, but I've heard around $250 a month. Taking care of your own chemicals will save you money as well. But just be aware that the ground shifts here and pools can be affected by that. Honestly I don't know anyone who had a pool who would ever have one again. I know some people love theirs, but I haven't met anyone who didn't have a ton of problems with theirs.

Also I saw you wanted a large lot and now potentially a pool. Finding both of those might be very hard.

[AndyRoddy]

Originally Posted by stephwin

We don't have a pool, but I've heard around $250 a month. Taking care of your own chemicals will save you money as well. But just be aware that the ground shifts here and pools can be affected by that. Honestly I don't know anyone who had a pool who would ever have one again. I know some people love theirs, but I haven't met anyone who didn't have a ton of problems with theirs.

Also I saw you wanted a large lot and now potentially a pool. Finding both of those might be very hard.

Thanks Stephwin. I assume we would be able to find a pool OR a large lot, I wouldn't expect to find both in the same listing. Thanks for the insight about ground shifts. I did not know about that.

[Nurseinplano]

I live in Richardson and my h area and my total electric in summer is 600. ugg...

[TX75007]

Originally Posted by AndyRoddy

TX75007, is it reasonable to expect a decent return on rental real estate in this area? A realtor told me the market value for an 8-yr old 4,500 SF home is around $3,000-$3,500 per month. It would be great to have a second home for investment purposes if those numbers are true, but it seems hard to believe.

There are two different games here. One is cash flow off operations. And the other is asset shifting.

Which one are you in?

Both of my rentals are farms with barns, corrals, and equipment with significant acreage. I rent the houses below market to older successful farmers who take real good care of the place including my equipment and the barns. I bought the land and the house at the bottom as foreclosures in 92 and in 2000 for 500 an acre as a bet that the market would come back. It has as the land is worth over 3000 an acre.

However, as a landlord, you have to subtract:

1. Mortgage.
2. Taxes.
3. Insurance.
4. Depreciation (which is a real cost as you must keep some $$ back for repairs.)
5. Cost of managing the property - I would use a property manager in town.
6. Opportunity cost on your sunk capital.
7. Taxes on ALL RENTS as Ordinary income as this is not your full time job. You CANNOT write off anything unless this is your FT job.
8. Cost of finding a new tenant and the time the place is not rented.

You can plug this into a spreadsheet and see what you come up with on a year to year basis. A 25% gross margin would be a good number. Anything less and there is just too much risk to your finances if something goes wrong. Something always will. That is why I would also pull the rental comps for the low points of the last ten years. Then see if a rent of $2000 a month would still work for you 1 year out of five...

Notice that I left appreciation off. I would never base my returns on an expectation of appreciation. Of course, if you can get the place for a song and do not care if you have to wait 20s years, then it can be worth it. But right now, because you make your money by buying LOW and selling high, real estate is not a good buy if you are looking to sit on it. That horse left the barn in late 2010.

There were some really good buys in Highland Park in 2010. Homes worth 1.1 million now sold for 800K or less. In two years, they will be up to 1.3 or more. Ditto the tear-down lots. There were some raw land foreclosures in collin county that went for 1900 an acre that are now up to 4000+. I think you can see what I mean. Its too late for that train. But something to keep in mind for the next time...

Right now rentals are hot. 6 years ago a lot of landlords rode the down market and many got hurt. Like many things, it is cyclical. That is why you must factor in the downside to your plans. There is always a downside and it is real.

[TX75007]

Originally Posted by Nurseinplano

I live in Richardson and my h area and my total electric in summer is 600. ugg...

I'd get a home inspector out to give you advice on what to do. With that kind of cost you can recoup it pretty quick with new windows, new AC unit, weather sealing, radiant barrier, insulation, etc. New homes are getting < $200 a month during the summer months...

[BigDGeek]

Originally Posted by stephwin

We don't have a pool, but I've heard around $250 a month. Taking care of your own chemicals will save you money as well. But just be aware that the ground shifts here and pools can be affected by that. Honestly I don't know anyone who had a pool who would ever have one again. I know some people love theirs, but I haven't met anyone who didn't have a ton of problems with theirs.

Also I saw you wanted a large lot and now potentially a pool. Finding both of those might be very hard.

Especially in Allen!

[AndyRoddy]

Originally Posted by TX75007

There are two different games here. One is cash flow off operations. And the other is asset shifting.

Which one are you in?

Both of my rentals are farms with barns, corrals, and equipment with significant acreage. I rent the houses below market to older successful farmers who take real good care of the place including my equipment and the barns. I bought the land and the house at the bottom as foreclosures in 92 and in 2000 for 500 an acre as a bet that the market would come back. It has as the land is worth over 3000 an acre.

However, as a landlord, you have to subtract:

1. Mortgage.
2. Taxes.
3. Insurance.
4. Depreciation (which is a real cost as you must keep some $$ back for repairs.)
5. Cost of managing the property - I would use a property manager in town.
6. Opportunity cost on your sunk capital.
7. Taxes on ALL RENTS as Ordinary income as this is not your full time job. You CANNOT write off anything unless this is your FT job.
8. Cost of finding a new tenant and the time the place is not rented.

You can plug this into a spreadsheet and see what you come up with on a year to year basis. A 25% gross margin would be a good number. Anything less and there is just too much risk to your finances if something goes wrong. Something always will. That is why I would also pull the rental comps for the low points of the last ten years. Then see if a rent of $2000 a month would still work for you 1 year out of five...

Notice that I left appreciation off. I would never base my returns on an expectation of appreciation. Of course, if you can get the place for a song and do not care if you have to wait 20s years, then it can be worth it. But right now, because you make your money by buying LOW and selling high, real estate is not a good buy if you are looking to sit on it. That horse left the barn in late 2010.

There were some really good buys in Highland Park in 2010. Homes worth 1.1 million now sold for 800K or less. In two years, they will be up to 1.3 or more. Ditto the tear-down lots. There were some raw land foreclosures in collin county that went for 1900 an acre that are now up to 4000+. I think you can see what I mean. Its too late for that train. But something to keep in mind for the next time...

Right now rentals are hot. 6 years ago a lot of landlords rode the down market and many got hurt. Like many things, it is cyclical. That is why you must factor in the downside to your plans. There is always a downside and it is real.

Awesome. I would be looking for cash flow, not appreciation. I have all these spreadsheets for the areas near where I live now, and investment RE doesn't make much sense for my price range in NJ. Hopefully TX will offer more opportunity.

I'd be wary of buying any RE for investment right now. Rates will rise, buying power will drop, and with stagnant incomes, I wouldn't be surprised by a significant drop in prices over the next decade.

But that's another discussion for another day.

I appreciate all the candid and useful advice. Thanks again.